No commercial tax relief until we see TIF reform

We must consider what tax breaks are already in place for commercial property.

Peter Fisher

Scare tactics about commercial property taxes in Iowa are nothing new. Legislators and governors of both parties have fanned that idea for years, appealing to businesses that pay tax on 100 percent of their property value, while residential homeowners pay on about half.

Of course we all want to retain and attract good jobs. But it is usually a mistake to simply look at one part of our tax code and make sweeping generalizations about the impact on business activity. Property taxes are just part of the overall system of state and local taxes, both for individuals and businesses.

Businesses that occupy commercial real estate are also taxed under the corporate or personal income tax. Iowa’s personal income tax level is about average, and the corporate income tax in Iowa is well below average. Research has shown that Iowa’s overall level of business taxation (including property taxes) is about average among the 50 states.

There are inequities in commercial property tax that we could fix — but we should do so strategically. And if we’re going to look at the rates, or consider rollbacks or other cuts, we must consider what breaks already are in place.

A good starting place: the out-of-control growth of tax abatements and subsidies through tax increment financing (TIF). While commercial property owners in general are expected to pay tax on the full assessed value of their property, TIF arrangements drastically reduce or eliminate commercial property taxes, but only for selected property owners. This creates a disparity, and equity issues within a community. One store pays little or no property tax; a competitor down the street pays the full rate.

Any substantial reductions in taxes on commercial property should also address the inequities and waste inherent in Iowa’s system of tax increment financing. There should be no commercial property tax relief without substantial TIF reform.

Posted by Peter Fisher, Research Director

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Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy.
By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.
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One thought on “No commercial tax relief until we see TIF reform”

Growing incremental tax districts that never relinquish their advantage for doing what the tax was created seems over the top. Simply sun setting these tax advantages would have a correcting affect of ending the advantages in areas that have continued for years. The county and school districts never see any advantage of increased property values with the portions of TIF they get frozen for years. The rest of us, those who don’t get to take advantage of this tax break, get to cover the increased load not covered by this “financing” tax dodge.